Critical Thinking Required

FTX went from a crypto exchange leader with a $32 billion valuation to bankruptcy in a matter of days, with potential criminal investigations and class-action lawsuits pending.  What happened?  FTX is a crypto exchange that was started by Sam Bankman-Fried (SBF).  Prior to FTX, he started a hedge fund Alameda Research, which the main purpose was to "act as a liquidity provider on FTX" according to Sam himself.  In early November this year, a CoinDesk report showed that Alameda's investment foundation was in FTT, the token that its sister company had invented, not a fiat currency or other cryptocurrency per industry best practices.  In addition, due to the sharp price decrease of most cryptocurrencies, FTX lent about $10 billion of customers' assets to Alameda.  All this bad news created a "bank run": FTX got over $5 billion worth of withdrawal requests within one day.  After Binance, the world's biggest crypto exchange refused to buy FTX out, it had no choice but to start the bankruptcy process.  Is this the end of crypto and blockchain?  Of course not!  But as always, understanding your investments is crucial.  If you want to make an asymmetric investment where the amount is insignificant to your overall assets and you don't mind losing it all, go ahead and have some fun.  Otherwise, please don't risk a big chunk of your assets on something trendy, and yet most of us don't truly understand.

2022 has been a crazy volatile year for the stock market. In the US, the S&P 500 index is down more than 20% year-to-date.  Considering the fact that the index had a positive 26.61% annual return for 2021, this certainly has been a roller coaster.  In this episode, Nathaniel and Kennidy discussed the emotions of an investor.  We had clients pressuring us to buy trendy tech companies at the end of 2021 when they were at historical highs; we also have clients begging us to sell everything when we entered the bear market.  What do we do?  Now don’t get us wrong, all our clients are more talented and smarter than us in a certain way, but keeping emotions in check when investing is kind of Nathaniel’s specialty!  Kennidy introduced some relaxing techniques in moments of high anxiety and stress.  Let’s all take a deep breath, and practice some self-care in this crazy world!

Today we are going to discuss the high-trending event: Elon Musk's Twitter purchase.  Musk offered to purchase Twitter back in April 2022 and waived due diligence.  Then in July, he attempted to back out of the deal due to a spam bots claim, and Twitter sued.  The acquisition was closed on October 2022.  Nathaniel spoke of Musk's Twitter debt and cash flow (spoil alert: virtually nonexistent), and why he thinks that Musk may have overpaid for the deal.  Now that Twitter is a private company without needing to report everything to the public, where is Musk taking the company?  He promised a "platform of freedom", and yet days later assured the ad sponsors "business as usual"; he claimed that he bought Twitter to "help humanity", and yet threatened to fire 75% of employees and believes working-crazy-hours-culture.  This is just the beginning.  We can't wait to see where the future lands for Twitter.

As you know, here in LBW we have four partners: Dan, Tim, Nathaniel, and Ying.  None of us are mind readers.  How do we ensure we are on the same page?  How do we communicate?  First, talk about what you want, constantly.  Not just business needs, but sometimes personal/household needs.  Have an operating agreement (even if your partners are your family & friends) before things go bad, not after.  Second, value each other's role on the team regardless of whether that puts you in the spotlight.  For example, Nathaniel is our CFO. He handles the tedious finance and operations behind the door.  No client really cares about that.  He's not the face of the company.  But the team literally can't survive without him.  Third, have compassion and empathy towards each other.  Dan said it well: just like a marriage, your business partners deserve your respect, care, and love.

Most of the people we work with are first-generation wealth.  This means many of them, even though they're rich now, are still developing their relationship with money.  How can they help their kids have a healthier relationship with finance, without the "taboo" feeling associated with wealth?  Dan and Kennidy spoke about their respective childhoods, and how they negatively impacted their feelings about money.  Dan talked about how he will teach his daughter Leyora differently to better understand the value of the dollar and have better financial habits.  Please remember, just because you felt it a certain way growing up, doesn't mean this has to be your kids' experience.  Break that generational curse, and help them grow into a financially-literate person.

Treasuries have been a trendy product for investors recently due to inflation and higher interest rates.  Nathaniel explained what U.S. Treasuries are: bills, notes, and bonds.  They're considered relatively risk-free investments (as long as the U.S. government doesn't default on its debt).  So if you want a fixed income portion within your investment portfolio, and don't want to expose all your assets to the volatile stock market, they could be a useful tool.  Even though people say Treasuries are risk-free, there are still some concepts you need to explore before investing: duration (interest rates), opportunity cost, credit risk, liquidity risk, inflation/deflation risk, maturity risk, etc.  As always, what may make sense for others, doesn't necessarily make sense for you.  Speak with your advisor to see if Treasuries are a good choice for you.

In this episode, Nathaniel discussed with Kennidy why he's a firm advocate for "buy and hold" long-term investing instead of market timing, and short-term trading.  Do you know that if you had invested in the S&P 500 starting in 1930 and never touched that money again, your total return by the end of 2020 would have been a stunning 17,715%?  And yet, if you went in and out of the market, and missed only the 10 best-performed days of each decade, your total return would have shrunk to merely 28%!  Nathaniel gave more data to support the power of long-term investing.  Understanding your investment time horizon is extremely essential before investing.  If you need the cash in the short term (within 5 years), maybe the stock market is not the ideal choice.  If you are investing for the long run, then: 1. understand your investment, understand its business and leadership; 2. buy it at a reasonable price with a margin of safety; 3. be consistent in your strategy; 4. review your investment periodically; 5. stay the course through market volatility.

We invited Danan Kirby from Ariel Funds to join us and discuss investing in sports.  Danan started with some interesting data: for the past 25 years, what do you think is the average return for an investment in the average sports team?  The answer is a whopping 19.9 times!  And that's just the average team.  Even though investing in sports teams usually is for the ultra-rich, the general public can invest in the related ecosystem, sports media, for example.  With younger generations consuming sports via vastly different mediums, it comes with different investment opportunities.  Nathaniel is interested in Danan's view on the sports bundle streaming business.  Ultimately, the big players are more likely to win with consolidation, adaption, and technology upgrades.  The team also discussed the fact that there's a big valuation discount at many publicly-traded companies related to sports and media, and what that means for the investors.  Overall, if you are a sports and investing enthusiast, this is a must-watch episode.

Two weeks after Nathaniel talked about his homebuying journey where he said they hadn't found "the one" yet, Ying and Nathaniel bought a beautiful condo with a gorgeous view.  So, we invited them back to talk about their journey of finding their forever home.  They talked about how they locked in an amazing 2.25% mortgage rate, their emotional journey, what they considered a true "purchasing budget", the "stress test" exercise, and what their future plans are regarding splitting time between Madison and Shanghai.  Ying shared her thoughts: express your feelings to your partner always; but let the numbers guide you to the final decision.  Nathaniel can't stress enough the importance of financial planning and positioning: to prep for their dream home, they have been positioning themselves ever since they are adults, even before knowing each other.  They didn't start to get ready when they wanted to buy a house; they were ready before they got to that point.  They waited for the fat pitch, and swung, hard.

This is a reaction video to some financial advice we found on TikTok recently.  "Don't put a down payment on your house, always put down as little as possible", "Buy crypto here, sell it there, and you will be rich".  Say what?????  Let's take a look.